I’m not sure why it would report that error, unless there were an underlying OS error that was not reported back to DropDMG, causing it to expect to see a file that wasn’t there. Does the error recur if you try it again, or if you try a different image destination?

In any case, DropDMG is not currently intended for making bootable images of read-write volumes such as hard drives. It will copy all the files, but the result is not guaranteed to be bootable. Making bootable images of read-only volumes such as DVDs will work, however.